Are credit cards good or bad
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This is such an awesome question!
We live in a world where a credit card has become pretty ubiquitous. Thanks to our digital push, most payments today have to be done via plastic, and to be fair, a credit card is often the best (and safest) option to pay through. Especially while paying at a counter that we aren’t certain about, why would one expose their debit card / account information? A credit card is safer because every card has fraud-protection inbuilt. So the question isn’t really whether credit cards are good or bad, but if our spending habits and financial discipline are suitable for a credit card.
The funny thing about credit is that it is seldom available when we need it! When we are better-off in life and no longer need credit – whether a card or a loan – banks and agencies pursue us to give us great deals and special low prices 🤷🏻♂️ This is true the world over, and is dependent on our credit rating. The obvious good of a credit card is that we have a ready line of credit in our pocket for an emergency, and it is accepted almost everywhere. So if you are looking to get your first credit card and wondering whether you should, do one thing – get a card – preferably Visa or Master since they’re accepted worldwide, from a bank which gives you a lifetime free card. Don’t worry about credit limit. Let it be low, no worries. As your credit rating increases and your payment profile is built with the bank, or as your income increases, the limit will go up pretty easily. Take that card and put it in a box at home if you’re not sure of whether you have the discipline or if you often spend beyond your means. That’s for an emergency. If you’re still jittery, do one thing – put a fixed deposit in a bank and ask for a credit card against that deposit. They’ll usually give 75% of the deposit as your credit limit. So a deposit of even ₹30000 will get you a card of ₹22000, which is a decent start. That way, your expenses are secured against a deposit which is also earning you interest.
Let’s get to why credit cards are so vilified. Like I mentioned above, in the initial days, credit was thrust down people’s throats – often with hardly any verification. Those days we didn’t have credit scores and CIBIL accessible to consumers. Obviously many of those card holders never paid back their dues fully. Then stepped in collection agencies, and it went downhill from there. Movies have been made and books written about this topic. It was much like loan sharks of the Zamindars of yore. Card debt settlement still remains a grey-hat industry, and most deals are done with third-party intermediaries who are often glorified goons. Ofcourse the fact remains that the customer signed on a piece of paper which clearly states that the interest rate is as high as 48% and that it would charged on the whole amount if part-payments were made. This is where most customers fail. If you spend ₹50000, and pay back ₹30000, one would assume that interest be charged only on the remaining ₹20000. But nope, it is charged on the full amount and the interest usually ranges from 2.5 to 4+% per month, or over 48% per year. Thats MUCH more expensive than the most expensive personal loan out there.
This post will continue into a series as there’s so much more to talk about. But to answer simply to this specific question, if you’re looking to take a credit card in order to tide over an immediate loan or a financial emergency, DON’T!! That is a sure-fire formula to go down that debt and collection rabbithole, and that is not what a credit card is for. You’ll do better with personal loans or a loan against property, or even a gold loan for such a cause. If you’re looking to build credit or to have a credit card to better manage your finances monthly, please go ahead and apply to a no-frills card. Don’t fall for reward points or lifestyle benefits when you’re taking your first card; those can come later. Make sure it is lifetime-free and is taken from a financial agency that you already have a track record with. Like with your salary bank or some agency where you have past history so verification and repayment both become easier. Again, don’t go in for fancy cards or cards with annual fees initially. Those are for later and we’ll talk more about them as this series evolves. For the personalised credit card segment, we also have a video series researching every single card and giving you the lowdown.
